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Banks… :|

The banks make money by lending out the money that people like us leave in trust to them.  That is how they work.  They don’t actually store all that cash that is deposited with them in big shoe boxes waiting for us to return.  In fact, as is well known, they don’t carry even close to the amount of money in cash that they have of our on their books.

The bank loan out this money that we have left in trust to them to other borrowers.  Those borrowers pay interest to the banks and they make money.  This is the business.  Why then are they continuing to charge me for the privilege of using my money to loan out to others?  Why, in this digital age where there it seems the administrative side of banking should be at a minimum, does my bank charge me $60 a year to manage a chequing account?  Why the charges for overdraft (it is not as though anyone has scrambled to temporarily redistribute money into my shoebox)?

We, the public, don’t want to keep wads of cash under our mattress because of the inherent risks of such a storage plan.  Thus we have come to take the fact that we keep our money with banks for granted (at least I have….it’s what I have always done).  What is in it for us?  The paltry interest offered  by such bank accounts are eaten up and then some by inflation (generally in the neighbourhood of 2% per year).  Certainly this business model is working for the banks.  They are certainly doing well, even in the wake of the financial disasters they themselves caused.

It irks me that the banks have taken advantage of us so.  The fact that I have to pay user fees so that they can have the use of my money to profit is irritating.  Perhaps it is time to look into new banking alternatives that waive such fees and don’t have the same overhead (tellers, buildings, and such) that are largely unused for my daily banking needs.

  1. December 10, 2012 at 1:11 am

    As you have noted, depositing money into savings accounts enables the ability to loan money which supports current societal “needs” including personal loans, auto financing, home ownership, business development and more. Whether we like it or not banks are an integral part of our society.

    Most banks charge fees on almost anything they can. I would argue these costs help offset expenditure rather than drive profit. Maintaining a network of branches is an expensive business which, in itself, is not very profitable. (Maintaining an ABM network is also expensive.) The majority of bank only profit comes from the spread between interest paid and interest received. While fees paid may pad this slightly, the ridiculous amount of profits you see posted from banks are not from the banking side of the business. Instead, these disgusting billions earned come from the investment side of the business which are nested under the parent bank name. Additionally, there are many third party companies which provide services to large companies (i.e. cheque clearing, trade settlement, armoured cars, etc) and many of these companies are owned by the larger companies. While everybody gets a piece of the action the money ends up in the same (but few) coffers.

    What to do about it? Bank accounts are consumer products and there are always options. Many low cost options for chequing and savings accounts exist. Interest rates are typically higher on these as they are offered by direct (virtual/non-brick-and-mortar) banks and they are able to pass on benefits to the consumers. If you’re happy to talk to someone on the phone then you’re good to go. If you want to talk to someone in person you’ll need to suck up paying the fees.

    Don’t want to pay the fees? Don’t pay the fees. Vote with your feet and save your hard earned dollars.

    • January 6, 2013 at 6:37 pm

      Your points are well formulated.
      However, shouldn’t providing customers with access to tellers and to the customer’s account be part of the costs of running their business? Aren’t these costs more than made up for with the profit the bank makes on the investments made with our money?

  1. December 19, 2012 at 11:53 pm

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